Pinera Bullish on Chilean Growth Amid ‘Gloomy’ World Picture

Sebastian Pinera, Chile's president, entered office in March 2010 on promises to cut red tape, limit fiscal spending and double economic growth to an average of 6 percent a year. Photographer: Toshiyuki Aizawa/Bloomberg

Sept. 10 (Bloomberg) -- Chile’s economic growth may
accelerate next year as the world’s largest copper producer
attracts ever increasing amounts of investment, President
Sebastian Pinera said in an interview.

“My hope is that we will be able to not only match but
surpass this year’s growth,” Pinera said yesterday from
Vladivostok, Russia, where he was attending a summit of the
Asia-Pacific Economic Cooperation group of nations. “The
Chilean economy is behaving in a very strong and sound way
despite a very gloomy picture in the international economy.”

The government, which forecasts 4.7 percent growth this
year following a 6 percent expansion in 2011, has estimated
growth of 4 percent to 5 percent in 2013 barring a
“spectacular” slowdown abroad, said Pinera, a Harvard
University-trained economist.

The president, 62, entered office in March 2010 on promises
to cut red tape, limit fiscal spending and double economic
growth to an average of 6 percent a year. The economy has met
that target to date with investment growing 15 percent a year,
he said, while the unemployment rate has plunged to 6.5 percent
in the three months through July from 9 percent.

“Unless something very spectacular happens in the
international economy, I hope that next year the Chilean economy
will keep performing very well,” Pinera said.

Popularity

The resilience of Chile’s economy to the global slowdown
hasn’t been reflected in Pinera’s popularity in the polls.

His approval rating fell to 27 percent in August -- the
lowest level of any president since Chile’s return to democracy
in 1990, according to Santiago-based polling company CEP. The
survey of 1,512 people had a margin of error of plus or minus 3
percentage points.

The country has been convulsed by more than a year of
student protests in favor of lower cost and higher quality
education. Student leaders such as Camila Vallejo have attracted
attention globally while pushing the government to boost
spending and limit the role of private industry in education.

Revenue is pouring into government coffers from the mining
industry, which is driving economic growth. Mining projects are
“extremely profitable” and are not dependent on copper prices
remaining at current levels, Pinera said.

Mining Boom

Copper prices have averaged $3.60 a pound so far this year,
compared with $1.79 a pound from the beginning of 2000 through
the end of 2009.

“The mining sector in Chile is booming, and I think it
will continue growing at a very fast pace,” Pinera said.

High copper prices are helping to increase Chile´s total
sales abroad even as some exporters suffer from a strong peso,
Pinera said. Chile’s peso has been the best-performing global
currency tracked by Bloomberg so far this year, rising 9.2
percent against the U.S. dollar.

The biggest impediment to Chile’s growth may come from the
electricity industry. Power supply shortages threaten
productivity as authorities block development of new generation
projects, central bank President Rodrigo Vergara told reporters
last week in Santiago.

Chile needs to double its electricity generating capacity
in 12 years, Pinera said, as mining companies such as BHP
Billiton Ltd. and state-owned Codelco plan $100 billion of
expansions, according to Chilean mining society Sonami.

Mining Threat

Reaching that goal has become increasingly difficult after
Pinera during his first year in office asked GDF Suez SA to
scrap plans to build a 540-megawatt coal-fired power plant on
the coast following environmental opposition. And this year an
investor in Chile’s largest energy project, the HidroAysen
series of hydroelectric plants, said it wanted to delay the
project over a lack of political support to proceed.

Mining companies are threatening to delay $18 billion in
projects because of high energy prices, water-supply and labor
shortages as well as a deceleration in China, Santiago-based
newspaper Diario Financiero reported Sept. 8, citing industry
sources it didn’t identify.

Pinera downplayed the threat of power shortages slowing
investment in the mining industry. The government will promote
investment in new plants by establishing a 20-year national
energy strategy and accelerating the development of renewable
energies, he said.

“It is not easy because we are facing a lot of problems
with community organizations, environmental groups and also with
the judiciary,” he said. “Chile is not a rich country in terms
of gas, or oil or coal, but we are extremely rich in terms of
the energies of the future.”

Poverty Pledge

Pinera needs to maintain economic growth in order to meet
his election pledge to eliminate extreme poverty by the time he
leaves office in 2014 and set the stage for Chile to eradicate
poverty this decade.

The percentage of Chileans living below the poverty level
fell to 14.4 percent last year from 15.1 percent in 2009, while
extreme poverty, or the percentage of people who can’t afford
the basic basket of foods, fell to 2.8 percent in 2011 from 3.7
percent three years ago, according to government data.

“Before we took office, the economy was not growing at a
fast pace and we had some problems in terms of growth, job
creation, investment and productivity,” Pinera said. “Our main
commitment was to recover our capacity to grow, create jobs, to
increase our productivity, to recover our exports and basically
to increase our investment as a percentage of GNP.”

To ensure growth, Chilean authorities have created a
contingency plan that would entail tapping a $15 billion
sovereign wealth fund to boost growth if the global slowdown
worsens, Finance Minister Felipe Larrain told reporters in
Santiago on May 17. The stimulus would target employment,
liquidity and investment.

Wealth and Wine

While in Russian, Pinera signed a free trade agreement with
Hong Kong. Chile, which has trade accords with more than 50
countries, wants to double annual trade with Hong Kong to more
than $1 billion.

The pact is part of a strategy to increase ties with China,
which is the biggest buyer of Chilean copper. Chile will
consider investing money held in its sovereign wealth funds in
Chinese assets, and is exploring ways to diversify its exports
to the Asian market, Pinera said.

One strategy would be to increase the sale of wine from
companies like Santiago-based Vina Concha y Toro SA, which
produces the Casillero del Diablo brand. The nation’s wine
exports last year totaled $1.7 billion, or 2 percent of total
sales abroad, according to central bank data. By comparison, the
mining industry accounted for 61 percent of exports.

“If we can convince the Chinese to drink one glass of wine
a week, we can grow our wine industry at a faster pace than our
mining industry,” said the billionaire entrepreneur-turned-politician. “Wine is very healthy, particularly red wine.”